Six rules for financial stability

Moneyweb

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Anton Prinsloo from PSG in Silverlakes, Pretoria, advises a young reader who is caring for her parents and two siblings on her financial future.

Question: I am an employed 27-year-old female with a retirement annuity (RA). I pay my parents’ monthly phone bill, groceries and medical insurance, but my funds are slowly shrinking. My parents recently found work, but have debts to sort out. How can I protect myself and ensure my family’s future?

Answer: Being financially unstable at retirement is usually the result of not having kept certain financial disciplines throughout your life. There may be exceptions like fraud or calamity, but most financial pain is self-inflicted. But if we examine our problems, we must also have the ability to prevent them.

Here are six guidelines to protect yourself:

First, decide that you do not want to end up in a financially unstable situation. This might sound trite, but if you do not make this decision now, chances are you won’t implement the other guidelines.

Second, save at least 15% to 20% of your salary. This is the first financial decision you need to make and it takes a lot of discipline to stick to it. But you can do so by putting debit orders in place for savings as soon as you receive your salary. This way, you won’t miss the money. Saving 15% to 20% increases your probability of being financially stable at 65.

Third, build up an access fund for difficult times. Ideally, it should cover six months’ expenses.

Fourth, consider how to manage your expenses. This is the only thing you have control over – where you live, what you drive, what you do in your spare time. Many expenses are necessary; some we cannot wish away, like the needs of your parents. But we can cut out luxuries.

Fifth, avoid debt. When you have to take on debt, like for a car or house, take as little as possible and pay it back as quickly as possible.

Sixth, be sure to save in assets that beat inflation over time. Generally, this requires having exposure to shares. Jannie Mouton, founder of PSG, says more people would be financially sound if, instead of putting their money into a bank deposit, they rather invested in the shares of that same bank. Many unit trust investments, exchange-traded funds and direct equity investments can give you a good long-term return and liquidity – the ability to withdraw your money if you need to.

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